What 'A La Carte' TV Would Mean For Advertisers

Only 20 Networks May Survive in an A La Carte World, Drastically Reducing Advertisers' Options for Reach

No matter how many arguments are made against a la carte as a remedy for the broken pay-TV model, the idea just won't die.

The dispute between Time Warner Cable and CBS, which took the Eye Network off the air for a month in some markets and the possibility of several more high-profile disputes before the end of the year continue to generate buzz for a TV-programming model that offers consumers greater choice.

TV networks are staunchly against the idea, fearing consumers wouldn't pay for their smaller networks. Credit: Taylor Callery for Ad Age

TV networks are staunchly against the idea, fearing consumers wouldn't pay for their smaller networks like MTV Jams or Cloo and might even blow a hole in revenue for midsize players.

But advertisers could also suffer if cable bundles break up and smaller channels thin in number, which would send more viewers to the bigger networks and drive up prices of reaching a mass audience.

If a la carte did materialize, Needham analyst Laura Martin estimates 50%, or $70 billion, would evaporate from the TV ecosystem (half coming from subscriber fees and the other half from advertising) and fewer than 20 channels would attract enough subscribers to survive.

While media buyers are skeptical the industry will ever allow consumers to cherrypick individual networks -- and some argue it would only affect the smallest of channels -- they acknowledge some form of unbundling is possible.

This would be good for broadcast TV, analysts say, because it would be even more desirable for its reach. Ultimately, increased demand would inflate the cost of reaching 1,000 viewers, an industry standard known as CPMs.

A significant amount of TV viewing comes from casual viewers watching channels that are available to them, but that they likely wouldn't want otherwise. Networks that fall outside of the top tier include independents like ReelzChannel and Ovation, as well as networks owned by conglomerates like Viacom's Centric and Discovery Communications' Velocity and the Military Channel.

Marketers don't typically buy advertising on networks that reach fewer than 25 million homes, and Amy Sotiridy, senior VP-director of national broadcast at Initiative, said for many of her clients the threshold is 50 million. This would make it difficult for niche networks to survive.

"If these long-tail channels disappear, cheap CPM networks would be off the media plan," said Michael Parent, senior VP-director of national broadcast at TargetCast. The top 20 networks would cost more, he said.

"Competition allows us to use networks against each other to negotiate lower prices," said Marc Morse, senior VP-national broadcast at RJ Palmer. In an a la carte world, the big networks would have the upper hand since there wouldn't be many places for advertisers to go, he said.

Media buyers are supportive of new networks entering the ecosystem since they increase competition and negotiating power. But a la carte would make it nearly impossible for a new network to launch, Ms. Sotiridy said. Why would a consumer pay for a channel that isn't proven, and how does a network develop cachet unless it has carriage?

This could make advertising on online platforms like Hulu and AOL even more attractive and help speed the shift of dollars out of TV and into digital. An a la carte system might spur more viewers to seek out individual shows online rather than buy specific networks, a trend that already seems to be happening.

"Viewers more and more are pursuing content vs. the network," said Francois Lee, senior VP-group client director at Starcom MediaVest. "The value for advertisers is in the content, wherever it lives, not in the network."

The average households receive more than 200 channels, but watches just 12 to 14 networks a month, Ms. Martin estimates.

"People would likely buy 10 to 15 networks and those would mostly be the top 10 to 15 networks with one or two niche channels thrown in," said Michael Law, senior VP-video activations at Carat.

A network could be in 80% of households but only be watched by half that, said Rino Scanzoni, chief investment officer at Group M. So going a la carte wouldn't necessarily change the ratings of the network -- just its perceived reach.

"If people watch the same amount of TV, only getting channels they want, the supply of ratings points would remain constant for the most part," Mr. Parent echoed.

But Mr. Parent doesn't believe the same amount of content would be consumed on TV. "There would be less casual viewing and a drop somewhat in surfing," he said. "It might drive some people online to watch certain shows. If out of the 10 networks there's nothing on you want to watch, you will turn it off."

~ ~ ~CORRECTION: An earlier version of this article said Rep. Anna G. Eshoo was circulating draft legislation that would let consumers choose cable channels on a la carte basis. The bill would require pay-TV companies to let consumers buy service excluding broadcast signals and bar broadcasters from making carriage of sibling cable networks a condition for carrying the broadcast signal, but it would not make pay-TV companies offer channels on an individual basis.